Caritas Anchor House is warning that an unexpected £1m VAT bill could put its work at risk and place greater pressure on local authorities.
The London-based charity, which provides accommodation to more than 230 homeless people each year, said it faces the charge in relation to its development of ‘move on’ flats to support homeless people.
The unexpected cost would force the charity to mothball the development project, Caritas Anchor House said, place substantial pressure on its services and funds, and increase demand on local authority services.
Caritas Anchor House said the VAT was incurred after HMRC reviewed its description of services and determined its definition as a ‘residential and life skills centre’ rather than a ‘homeless hostel’ left it subject to VAT.
The charity said it had been given advice that the VAT liability for the development would be £250,000, and the higher charge came despite no change in the organisation’s services. The charity said it is being “penalised for positively and accurately describing its work”.
A spokesperson for HMRC said the department does not comment on identifiable taxpayers.
"VAT status is a matter of law, determined by the nature and activities of the individual organisation,” HMRC said in a statement. “Although the tax payable in law has to be paid, we will always provide practical support and advice when approached. Time to pay arrangements are available for those with payment problems and anyone in this position should talk to us as soon as they can so we can do everything possible to help."
Caritas Anchor House said the full cost could rise to £1.5m once costs to halt development and challenge the decision are included, and appealed to the Government to reverse the decision.
The charity’s chief executive Keith Fernett said the charge is devastating to its work and the people it supports.
“We believe we’re being unreasonably penalised for accurately describing our operations despite not changing what we do,” Fernett said.
“What makes this situation even worse is that we have worked incredibly hard to deliver a level of service with a reliance on donations and relatively little government funding. We hope HMRC will reverse its decision, and allow us to continue making a huge difference to people’s lives. Otherwise our work is at risk, and local authority services will be put under greater pressure.”